Reforms needed in the Income tax law

Reforms needed in the Income tax law

Relevancy

  • GS Prelims, GS Mains paper III
  • Economy, Income tax law
  • Special task force
  • Reforms in Income tax law

 

Recently

  • The Central Board of Direct Taxes has set up a new task force to draft Direct tax legislation again.

 

What is the need for this taskforce?

  • The present income tax law requires radical re-adaptation.
  • But every attempt at simplification results in the law getting more complicated that is why special task force has been set up.
  • The law has to march with the times.
  • It is set up to review the following:
    • Simplification of the tax law
    • the direct tax system prevalent in various countries
    • international best practices
    • the economic needs of the country
    • and any other connected matter

 

What are some desired changes to current laws?

  • Search and seizure provisions:
    • Search of the residential and business premises of the taxpayer involves an invasion of his privacy.
    • The provisions for search and seizure lead to harassment of the taxpayer on a large scale.
    • Also the final results are not known till many years.
    • Today, with the help of information technology, the I-T department can choose to use without resort to search and seizure.
  • Ending tax terrorism:
    • There is a need to drop the provisions in the I-T law to resort to searches, surveys and seizures using the IT revolution.
    • This will end all accusations of tax terrorism.
    • It will also prove Prime minister’s principle of less government and more governance.
  • Taxable entities simplification:
    • Current Income tax law has divided the PAN category of taxpayers into sections like:
      • the Association of Persons
      • Body of Individuals
      • Company
      • Firm
      • Government
      • Hindu Undivided Family
      • Artificial Juridical Person
      • Local Authority
      • Limited Liability Partnership
      • Trust
      • Individual
    • Tax collection data from these entities shows that the work related to most of them is not fruitful.
    • The task force should examine if the PAN category should be limited to corporate and non-corporate entities and abolish the rest.
    • This will lead to simplification of the tax law.
  • Hindu undivided families:
    • Special status of HUF should be done away with because this leads to artificial tax planning and splitting of incomes.
    • Recently Hindu law has enabled daughters to be coparceners along with sons.
    • The abolition of HUF can help in uniform tax-code applicable to all persons without reference to religion and faith.
  • Agricultural income:
    • The task force should consider taxing income from agriculture.
    • A small minority in the millionaire and the billionaire group of taxpayers uses the facility in law to offer income otherwise taxable as agricultural income.
    • Even if it demands amending of the constitution, this should be thought of.
  • Tier of appeals:
    • Presently we have appeals from the assessing officer to:
      • the CIT (appeals)
      • the ITAT
      • the High Court
      • the Supreme Court
    • In between we also have the Settlement Commission and the Authority for Advance Ruling.
    • Task force should examine all the appealing authorities.
    • Example a murder accused can only go from the Sessions Court to the High Court and the Supreme Court.
    • But a rich taxpayer can fight on many forums with no results/punishments for about 15 years.
  • Abolishing certain appeals:
    • The task force should consider abolishing the post of CIT (appeals) which is not independent.
    • CIT’s (Appeals) are all under the Ministry of Finance.
    • Also the Settlement Commission needs to be abolished.
  • Charitable trust:
    • The provisions of exemptions and deductions in the I-T law creates many complications.
    • There have also been claims of charitable trusts for exemptions.
    • Task force should consider whether the tax law should promote philanthropy at the expense of the taxpayer.
    • Charitable deductions and incentive deductions should be done away with.
    • Removal of these will simplify the tax law and reduce the number of sections in the law.

 

Conclusion

  • Demonetisation and GST have provided opportunities for the I-T department to widen the tax base.
  • It will investigate tax frauds rigorously in coming years and this opportunity must be fully utilised.
  • The I-T department should take maximum benefit of digitalisation and Information technology for the greater good.

 

 

Famers bear the brunt of droughts and cyclone in South India

Relevancy:

  • GS Prelims, GS Mains paper III
  • Environment, Sci-tech, Cyclone Ockhi

Recently:

  • Cyclone Ockhihit the Indian coastline. Presently categorized as ‘very severe’, the cyclone is likely to be reduced as a ‘severe’ category cyclone.
  • Last year, southern India suffered from a severe drought.
  • The cyclone is expected to hit the coasts of Maharashtra and Gujarat soon.

Effect on Agriculture:

  • The farmers of cash and crop plantations were expecting good yields for their December harvests, but with the arrival of the cyclone, cold waters were poured over their hopes.
  • The cyclone has laid waste acres of banana farms.
  • Rubber, a major crop in the area, has been devastated, with trees thousands of uprooted.
  • Ploughed land, ready for planting, now lies under water.
  • Fishermen are also suffering due to the cyclone.
  • Though coconut trees have fared better in this cyclone, they were badly affected by the drought.

For more about the cyclones or hurricanes, their formation and categorization, search IAS Buzz (keyword – Cyclone)

 

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